Don't use your bank for foreign property purchase
The Sunday Times, 16 July 2006
By Claire Francis
PEOPLE buying second homes abroad are losing thousands of pounds in currency exchange because they use high-street banks rather than specialist foreign-exchange brokers.
Research from FCD, a broker, found buyers could have lost £1.8 billion ($3.52 billion) due to poor deals on foreign exchange. For example, last Wednesday HSBC was offering €1.382 to the pound, compared with €1.44 from HiFX, another forex broker, and €1.442 from FCD. And when you are transferring large sums, as with a house purchase, this makes a big difference. If you had used HSBC to exchange £150,000 you would have recieved €207,345 - €8,925 ($1,602)) less than if you had gone to FCD.
Despite this, 86% of people buying abroad still use their bank, according to research from Commercial FX, another forex broker, which is owned by International Currency Exchange. To make the most of your investment, you need to get the best rate for your currency, which means avoiding the high-street banks and using a specialist foreign currency provider.
Some forex dealers have minimum transfer amounts. HiFX, for instance, deals only in lump-sum transfers of £$5,000 or more. Others levy a fee if the value of your transfer is below a certain amount. FCD charges £15 ($29) if you need to exchange less than £50,000. Foreign banks sometimes charge for receiving money from overseas. Specialist brokers will absorb these costs. Another benefit of brokers is that you can fix the exchange rate, often for up to two years. This means you can avoid currency fluctuations - a good idea if you are buying abroad.
Currency movements can have a big impact on the amount you end up paying for the property because of the time it takes for the purchase to complete. If the pound weakens during that time, you would pay more for the property than you were expecting. But if the pound strengthens, the property would cost you less. Mark Bodega at HiFX said: "The high-risk strategy would be to buy currency when you need it, because you wouldn't know what the property is going to cost. If you want a risk-free option, fix the exchange rate as soon as possible. We always remind people that they would never agree to buy a property in Britain if they didn't know the final cost.